Ex-executives:enron, Broker Struck A Deal

August 8, 2002|By David Barboza The New York Times

HOUSTON — Desperate to meet a year-end profit target, the Enron Corp. struck a sham energy deal with Merrill Lynch that let Enron book a $60 million profit in the final days of December 1999, according to former Enron executives involved in the transaction.

The executives said that the energy deal, a complex set of gas and power trades, was intended to inflate Enron's profits and drive up its stock price. Enron and Merrill Lynch, they said, agreed that the deal would be canceled after Enron booked the profits; it later was.

The power deal unleashed the payment of millions of dollars in bonuses and restricted stock to high-ranking executives, including Kenneth Lay, then the chief executive, and Jeffrey Skilling, then Enron's president, former executives said.

"This was absolutely a sham transaction, and it was an 11th hour deal," said one former Enron executive who was briefed on the deal. "We did this deal to get 1999 earnings."

This account was confirmed by five other former executives who either worked on the deal or were briefed on it. All the executives insisted on anonymity.

Merrill Lynch officials said there was nothing improper about the power deal and no prearrangement to cancel it, and one former Enron executive agreed.

"The trades we conducted with Enron were legitimate transactions involving real risk," Merrill said in a statement on Wednesday. "At no time did Merrill Lynch knowingly assist Enron in misstating revenues."

Yet Merrill executives were so concerned about Enron's accounting for the deal that they obtained a letter signed by Richard Causey, Enron's chief accounting officer, stating that Enron did not rely on Merrill Lynch for accounting advice, former executives said.

The deal was five times bigger than Enron's sale of a Nigerian power barge to Merrill Lynch the same month, a transaction that a Senate panel denounced last week as evidence that the Wall Street bank helped Enron inflate its profits and cook its books.

Both of the December 1999 deals came as Enron struggled to meet Wall Street's year-end profit expectations. With the profits from the deals, Enron on Jan. 18, 2000, reported a fourth-quarter profit of $259 million, or 31 cents a share, matching analysts' expectations. Without the $60 million profit, the company would have reported earnings of about 24 cents a share, according to Charles Hill, director of research at Thomson First Call.

For its role in the deal, Merrill Lynch received about $8 million from Enron, people close to the transaction said.